Why Gen X Won't Save Our Economy

Inside the Story by the Numbers

CHICAGO (AdAge.com) -- For the past few decades, baby boomers have driven the economic growth in the U.S. Bigger earners and big spenders, they have gone through what are generally the peak earning and peak spending periods of their lives. And there are a lot of them, in case you didn't know. Current Census data puts the number of boomers at just under 80 million, or a touch over one-third of all adults. However they're now moving into the older cohort and those folks don't spend nearly as much. Let's look at those statistics for a minute.

In 1999 the boomers were between the ages of 35 and 54. Their generation accounted for 42% of households, 53% of all pre-tax income and just over half of all spending in the U.S. -- $2.0 trillion.

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In 2008, the boomers have moved into the 45 to 64 age range. They still account for 44% of total spending and 46% of income.

The boomers, despite their superior numbers, are shifting into the 65-and-over age group which typically accounts for just 14% of spending as their mortgages get paid off, their children have graduated college and moved out on their own and their expenses decrease. While this age group generally spends money on big-ticket items like second homes and travel, with the recession hitting their 401Ks just as they were about to retire, many are foregoing those expenses and continuing to work.

That further hoses the Gen Xers because so many can't move up into the higher-paying jobs.

We turn to the author of a recent book on Gen Xers, "What's next Gen X," Tammy Erickson, for some guidance. She says, "[Gen X] really have gotten the short end of the stick from a monetary standpoint. Right now at the recession the bulk of Gen X is in both their peak income and peak spending years of life. Your peak income is being limited at a time when you'd want to be maximizing it. And your peak spending is occurring at the time when you're least likely to have a lot of discretionary income. They're much poorer as a generation than boomers were through no fault of their own."

Generation X, meanwhile, currently accounts for just 22% of total spending (4% less than the comparable half of Boomers did in 1999). Even if you include the older segment of Generation Y (age 25-34), you still only total 38% of spending.

Why is that a problem?

The problem is that these two age groups, even when combined, have 2.4 million fewer households than the boomers did. At a time when the economy needs them to step up and spend us out of the recession, they simply lack the horsepower to do so. Even if they spend at the same rate as the boomers, which they typically don't, they will be pumping significantly less money into the economy.

The 2009 unemployment rate will factor in as well. The two age groups with the highest unemployment rates are 25 to 34 at 9.9% (those coming out of college from 25 to 29 are at 10.6%) and 35 to 44 at 7.9%. So the age group that should be coming into their earning prime is instead out of work at a very high rate.

Let's look at it another way. In 1998, the 25 to 44 (Gen X and late boomers) segment out-earned the 45 to 64 segment (boomers and pre-boomers) by $426 billion. If we look at those same age ranges in 2008 -- now Gen Xers and older millennials vs. the boomers, the boomers are pulling in $535 billion more than their younger counterparts. So the boomers are still driving the growth.

To put those figures in scale, $426 billion is more than four times the combined 2008 revenue of Ad Age's 100 leading national advertisers. That's right around the gross domestic product for Sweden, the 22nd-ranked country by GDP in the world, or about twice the GDP of Hong Kong.

Is there a silver lining in there? Anywhere? Yes. With all the talk about how big the boomer generation is, and how the millennials are hard to figure out, we often forget that the millennials actually outnumber the boomers. For the next several years, we'll have fewer households in the peak spending years, but eventually the millennials -- all 85 million of them -- will flow in.

In five to 10 years they will start hitting their stride economically and they, like the boomers, will be a massive new force in the economy, albeit a lower-earning one than the boomers before them. And since the boomers have a good 20 to 40 spending years left in them, if marketers can figure out how to keep them spending -- on the grandkids, for instance -- maybe they can help keep the recovery, once it happens, rolling.

But while income and spending are just two of a number of variables that will affect the rate of recovery from this recession (productivity, volatility in the global markets and housing prices, being some others), they are pretty powerful drivers of economic health and growth. With the Xers coming up short, hang on. It's going to be a bumpy ride for quite some time.